Red Team Mode

Break the plan before reality does

Attacking your scenario: 0.5x leverage · governance 78/100 Change in simulator

Executive summary

Investment-committee view of the stress results below.

The structure is stress-resilient: all 4 cases clear the coverage and leverage limits, with worst-case equity erosion of $63.7M in the perfect storm case.

Key findings

Headroom: a 90.0% fall in EBITDA trips the first limit (debt rises above 5.0x EBITDA), unchanged from today.
Perfect storm: EBITDA −45.7% · multiple −38.1% · rates +2 pts; coverage 25.0x → 10.9x, equity $90.0M → $26.3M.
Governance is the cheapest hedge: best-practice authority and succession planning would preserve $21.2M in the founder incapacitation case.

Recommended actions

1Close the authority and succession planning gaps before executing: worth $21.2M in the downside, at no balance-sheet cost.

Breaking points

How far earnings or the valuation multiple can fall before each limit breaks. Closest first.

Your decision leaves the company exactly as fragile as today.

Limit	Driver	Your scenario	Today
Debt rises above 5.0x EBITDA	EBITDA falls	90.0% fall	90.0% fall
Interest coverage falls below 2.0x	EBITDA falls	92.0% fall	92.0% fall
Equity is wiped out	EBITDA falls	93.8% fall	93.8% fall
Equity is wiped out	Multiple falls	93.8% fall	93.8% fall

Liquidity & covenant alerts

Ten years of the three-statement model: covenant breaches, revolver draws and repayment gaps. The downturn cuts revenue 15% and margin 2 points in year 1, then recovers.

Base caseDownturn

Today

Base case

Clear. Weakest year still generates $7.7M of free cash flow.

Downturn

Clear. Weakest year still generates $6.4M of free cash flow.

Your scenario

Base case

Clear. Weakest year still generates $7.7M of free cash flow.

Downturn

Clear. Weakest year still generates $6.4M of free cash flow.

Stress scenarios

Founder incapacitation

The founder is suddenly unable to lead or decide.

Survives

EBITDA −17.4% · multiple −17.4%

Metric	Before	After
Enterprise value	$96.0M	$65.5M
Equity value	$90.0M	$59.5M
Interest coverage	25.0x	20.6x
Debt / EBITDA	0.5x	0.6x

Value destroyed$30.5M

Control vacuum: the founder holds 80% and there is no complete incapacitation plan to say who decides.

With best-practice authority and succession planning: EBITDA −5.0% · multiple −5.0%, saving $21.2M. Close the gaps

Successor exit

The chosen heir walks away and wants their shares bought out.

Survives

EBITDA −3.0%

Metric	Before	After
Enterprise value	$96.0M	$93.1M
Equity value	$90.0M	$87.1M
Interest coverage	25.0x	24.3x
Debt / EBITDA	0.5x	0.5x

Value destroyed$2.9M

No heir stake: limited exposure. Only the loss of the successor's management role is felt.

With best-practice shareholder agreements: EBITDA −3.0%. Close the gaps

Economic downturn

Earnings and valuations fall while borrowing costs rise.

Survives

EBITDA −32.1% · multiple −25.0% · rates +2 pts

Metric	Before	After
Enterprise value	$96.0M	$48.9M
Equity value	$90.0M	$42.9M
Interest coverage	25.0x	13.6x
Debt / EBITDA	0.5x	0.7x

Value destroyed$47.1M

A thin, informal board reacts late, deepening the earnings hit.

With best-practice board: EBITDA −25.0% · multiple −25.0% · rates +2 pts, saving $5.1M. Close the gaps

Perfect storm

All three at once.

Survives

EBITDA −45.7% · multiple −38.1% · rates +2 pts

Metric	Before	After
Enterprise value	$96.0M	$32.3M
Equity value	$90.0M	$26.3M
Interest coverage	25.0x	10.9x
Debt / EBITDA	0.5x	0.9x

Value destroyed$63.7M

Control vacuum: the founder holds 80% and there is no complete incapacitation plan to say who decides.
No heir stake: limited exposure. Only the loss of the successor's management role is felt.
A thin, informal board reacts late, deepening the earnings hit.

With best-practice authority and succession planning, shareholder agreements, board: EBITDA −30.9% · multiple −28.8% · rates +2 pts, saving $15.0M. Close the gaps